Renting or Buying:Advantages and Disadvantages

If you are considering buying a house, one of the first decisions you need to make is whether buying a house instead of renting one is the right direction for you. Since owning a home is the "American Dream", many people simply assume that it's always to their advantage to buy a home, and for most, it is. Take a moment to review the following table to see how your situation fits in. Items in the green boxes are advantages and in the red boxes are disadvantages.

Renting   BuyingAdvantages   DisadvantagesMore fixed costs for the term of the lease   Variable costs

Not gaining equity,but not losing it either   Equity may go up, down, or stay

stagnantWhen the lease is up,you can just move   If you want to move, home generally

must be soldThere is generally less work in maintaining a home or apartment   Work needs to be done by you--or paid

for by you

Smaller amount of "up-front" cash   Generally a larger initial investment--the downpayment

Disadvantages 

Advantages

No matter what happens with the value of the home, you will never gain equity  

Over time, the mortgage balance decreases and equity builds, even if the value of the home does not increase

Limited--or no--ability to personalizeyour living quarters  

The ability to remodel and redecorate the home to match your needs and desires

No tax advantage to renting. Your landlord gets any and all tax breaks that are available

 There can be tax advantages attached to home ownership. Consult competent legal and/or accounting advice for details for your situation

For many people, owning a home is the fulfillment (accomplishment) of the American dream.

For others, it is their worst nightmare. Purchasing a home is one of the biggest financial

decisions you will make in your life. So, before you decide to buy, carefully consider the pros

and cons of homeownership.

When you think about buying a home, many questions will come to mind. Do I really need to

buy a home? Is my income going to grow? Will I stay in a home long enough to benefit from

the purchase? Have I got enough money saved? Am I ready for the responsibility? Buying a

home is a major financial move, so you’re wise to look carefully at the positive and negative

aspects. Information in this chapter will help you examine the pros and cons of owning a home,

based on your personal desires, future plans, and general financial position.

Advantages and Disadvantages of Owning a Home

Before buying a home, it’s important to consider how such a purchase will affect your finances

and your lifestyle. It makes sense to review all of the advantages and disadvantages of

becoming a homeowner before making this big commitment.

What are the advantages?

Greater privacy.

Homes typically increase in value.

Your costs are predictable and more stable than renting because they’re ideally based on

a fixed-rate mortgage.

The interest and property tax portion of your mortgage payment is a tax deduction.

There’s pride in homeownership, which also closely ties you to your community.

What are the disadvantages?

Homeownership is a long-term financial commitment.

You're responsible for all maintenance on your home. This can include inexpensive

repairs like fixing a broken toilet to complex and costly repairs like replacing a furnace.

Owning a home ties you to your community, making it more difficult to suddenly pick up

and leave a location.

Although mortgage payments are usually fixed, they’re generally higher than rent

payments.

Buying a home requires a down payment, closing costs and moving expenses.

The value of your house may not increase – especially during the first few years. 

Advantages and Disadvantages of Renting a Home

Depending on your financial situation and preferred style of living, there are many advantages

to renting:

Renting a home can be cheaper than buying a home. Your payments tend to be lower than

a comparable house payment. Also, your rent may cover utility costs (additional savings).

You have more flexibility when you rent. Most leases are for 12 months. So, if your job

requires you to move frequently, renting can be a desirable alternative to owning.

Your landlord, not you, is responsible for performing nearly all maintenance and repair

work on the property.

Financial Disadvantages of Renting

There is no tax break for renting. You won’t be able to claim any deduction for

mortgage interest and property taxes when you file your tax returns.

Your housing costs aren’t fixed like they are with a fixed-rate mortgage. Your rent will

most likely grow from year to year.

Owning vs. RentingOwn Or Rent Advantages DisadvantagesHomeownership Privacy

Usually a good investmentMore stable housing costs from year to yearPride in ownership and strong community tiesTax incentivesEquity buildup (savings)

Long-term commitmentMaintenance and repair costsLack of flexibilityUsually more expensive than rentingHigh up-front costsForeclosure

Renting Lower housing costsShorter-term commitmentNo/minimal maintenance and repair costs

No tax incentivesNo fixed housing costsNo building of equity

Here are the factors to consider when comparing buying to renting a home:

Homeownership is not for everyone.

Homeownership requires you to have a stable or growing income.

Financial benefits of homeownership are long term. You should have a budget and

savings plan in place before buying a home. Owning a home is a big responsibility.